Business for Sale
The business: Madison Avenue, eat your heart out. This advertising agency practically sells itself. Robust cash flow! Loyal customers! A Sun Belt location to die for! The agency, based in a coastal metropolis, specializes in regional and national advertising campaigns for leisure-time products, such as outdoor and marine gear. The agency's menu of services includes market research, media planning and buying, print and broadcast production, and trade-show-exhibit design. Revenues and profits have been consistent year after year. So has the staff. The owner was once very involved in the business but has been preparing the agency for his departure for some time. His 10 employees are used to working independently and will help a new owner maintain strong ties to customers, many of whom are headquartered close by. Thanks to a well-designed sales-incentive program, staffers are likely to keep their creative juices flowing at the agency for quite a while. Another selling point is the company's current $310,000 in accounts receivable (with payables of about $130,000). The agency typically collects within 30 days and has no history of writing off bad debts. The owner, who financed his agency's growth entirely with cash flow, is eager for early retirement. That said, he is willing to stay on for a reasonable transition period if the buyer wants him to.
Price: $1.8 million, with a $400,000 down payment. The owner has already lined up two $1.3-million finance packages, one with the U.S. Small Business Administration and one with a commercial lender. Each has a repayment period of 10 years, at market interest rates. The owner is also willing to shell out an additional $100,000 of financing to be repaid in seven years.
Outlook: The tag line to this pitch is, Be prepared to bring in new business. Don't expect to sell more, more, more to the existing client base of fewer than 12 customers; the agency has already maximized the cross-selling possibilities. Instead, a prospective buyer should think about wooing new clients in the agency's well-established leisure-time niche, particularly in other parts of the country. That may involve expansion of the marketing team if the new owner wants to spend a lot of time surfside.
Price rationale: If you were going to create an ad campaign to sell this agency, you'd probably start by touting its price. Just two years ago, when the advertising industry was in the midst of consolidation, the typical agency sold at prices ranging from 100% to 150% of annual sales. Today the consolidation craze has cooled significantly, and agencies fetch only about 70% of annual revenues. Taking that percentage of the 2001 projections suggests a price tag of $1,925,000 for this company -- $125,000 more than the asking price. Why so cheap? Perhaps the owner thinks that the small client base will give buyers pause.
Pros: With a substantial financing package in place, this is a "shore" thing for anyone with $400,000 in cash and an advertising background.
Cons: Its desirable industry niche and roots in a fast-growing metropolitan center just might convince the global players that one last deal is worth their time and money, drowning your chances to pick up a bargain.
|EBITDA**|| Owner's |
*Includes commissions on media buys and fees for services that the agency provides; does not include "capitalized" billings, which are the total cost to customers of media purchases, currently about $18 million annually.
**Earnings before interest, taxes, depreciation, and amortization.
Inc has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Bill Russell at Southeast Business Partners Inc., at 800-784-7820 or firstname.lastname@example.org.
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